In a bid to diversify its supply chains the European Union succeeded in concluding, on Tuesday 27 January, the negotiations begun in 2007 on “the mother of all deals”, a free trade agreement with its partner India.
With this agreement, the EU expects to double its exports to India.
“We’re creating a market of two billion people. And this is the tale of two giants: the world’s second and fourth largest economies, two giants who choose partnership in a true win-win fashion”, declared a satisfied Ursula von der Leyen, President of the European Commission, at the EU/India summit in New Delhi.
Following the signing of the trade agreement with the Mercosur countries on 17 January (see EUROPE 13789/14), the EU is pursuing this policy of trade diversification at a time when its historic ally, the United States, is proving increasingly unpredictable.
“Balanced” agreement. The European Union welcomed the balanced agreement. It is “much better than those that India has recently adopted with Australia, the EFTA countries or the United Kingdom”, stressed a European official.
The liberalisation (total and partial) of EU exports should make it possible to achieve a coverage of almost 97% of its goods in India.
“This is a very impressive result, especially considering that India has, until now, been a country that has developed behind a very high level of tariff protection”, explained the same official.
The EU predicts that once the agreement is signed, European operators and exporters will save almost €4 billion a year in customs duties.
Automotive and steel. On the sensitive subject of the automotive industry, the partners have agreed on quotas for European exports (250,000 vehicles per year), accompanied by customs duties that will fall from 110% to 10%.
The quota for imports of Indian vehicles into the EU has been set at 600,125 vehicles, as the European market is 2.5 times larger than the Indian market.
Steel exports, which account for 7% of India’s exports to the EU, was another point of tension which was finally resolved with a reduction in the quantity of these exports in order to appease the European sector (see EUROPE 13725/1).
The agreement will provide for a duty-free quota of 1.6 million tonnes for Indian steel, according to a European official.
Agricultural and industrial products. As expected, the most sensitive agricultural products on both sides were excluded from the negotiations. Products such as sugar, ethanol, rice, beef and chicken are not subject to tariff elimination.
For the rest, the agreement abolishes or reduces customs duties considered prohibitive (over 36% on average) on EU agri-food exports.
Reductions are planned for wines, spirits and beers, while tariffs will be completely abolished for olive oil, processed foods and fruit juices.
“The EU has obtained an unprecedented market access offer for agri-food products compared with other agreements that India has recently negotiated. What’s more, the EU has managed to preserve its sensitive sectors, which was a challenge given India’s offensive interest as an agricultural powerhouse”, explained a source at the European Commission.
Industrial products such as machinery and electrical equipment, chemicals and pharmaceuticals will also benefit from a gradual elimination of tariffs.
Carbon Border Adjustment Mechanism. The application of the EU’s Carbon Border Adjustment Mechanism (CBAM) is raising eyebrows among many of the EU’s trading partners, particularly New Delhi. India claims that imposing (environmental) standards is an infringement of its sovereignty.
With this free trade agreement, the EU has undertaken to set up a technical dialogue on the issue, and not to offer a competitive advantage in the application of CBAM to other trading partners, such as the United States, in the future.
Fundamental rights and sustainable development. In response to Indian concerns, the agreement does not include chapters on public procurement, energy and raw materials, or the liberalisation of investment in manufacturing sectors, which have been included in other recent agreements.
It does include a chapter on sustainable development, fundamental rights and respect for labour rights. However, no dispute settlement mechanism will be applied to this chapter, in favour of “a more cooperative approach”.
The agreement is also expected to contain a section on combating unfair trading practices, including the possibility of introducing bilateral safeguard measures in the event of a sudden increase in imports.
Next step in the negotiations. This summit marks the end of negotiations between the two partners. But it will require the agreement of the Member States, before official signature, which will be followed by the approval of the European Parliament, a procedure that could take several months. (Original version in French by Pauline Denys)